Despite record growth in house prices, the number of new homes we build continues to decline. Housing output per head of population in the UK is lower than in any other major western economy. This trend is unlikely to reverse in the next few years. It is the result of a number of complex and inter-linked factors but at the core are a chronic lack of skilled labour, lengthening planning delays, not enough public funding and, unfortunately, policies aimed at increasing housing output on previously used land. Faced with an apparent inability to build enough houses, one has to start by asking who builds houses in the UK and why?

Housebuilding in this country is a highly polarised business. At one end of the spectrum plc housebuilders are in the business of building private housing in order to make decent returns for their shareholders rather than hit the latest government targets. At the other end, the housing association sector is faced with a finite amount of public funding to buy land for affordable housing in a highly competitive marketplace. There is little if any new housing built in the "middle" ground for the growing number of key workers who are being priced out of the market in the South.

Although neither group has managed to increase output recently, it is the private sector developers that have the greatest potential to increase capacity in the short term. However, current planning policy is acting as a drag on housing output. Planning Policy Guidance Note 3 is the government's key policy instrument that relates to the delivery of new housing. The central policy objective is that at least 60% of housing should be developed on previously developed, "brownfield" land. Although this target has been hit, it has led to a doubling of the number of flats being built in the past five years. It has also rendered large "green" chunks of housebuilders' land banks un-developable for the foreseeable future.

Developing at higher densities on brownfield land is more costly, more time-consuming and absorbs more cash than lower-density, greenfield development. Flats now account for a third of annual housing output and this explains why the capital employed by the biggest housebuilders has doubled in the past five years while their turnover has risen by only 140%. It will take time for private developers to adapt their balance sheets to the changing nature of development. Some may fall victim to further consolidation within the housebuilding sector but it is hard to see how they can suddenly increase output in the next few years.

We need to look beyond the private housebuilding industry for bodies that may start to build houses

There are some highly radical solutions to the housing supply problem but they will involve huge political will and lots of hard cash in order to make them a reality. More realistic solutions will not be quick, easy or cheap. Policies are needed that can speed up the release of land for housing. This is being addressed to a limited degree, as is potential reform of the planning system, but action is needed sooner rather than later. For example, it is all well and good to trumpet the existence of some 280,000 ha of brownfield land that is available for housing, but whether anyone is in charge of getting houses built on this land is another matter. How much of it is located in flood plains or poorly serviced by public transport is unclear.

We need to look beyond the private housebuilding industry for organisations that may start to build houses. Commercial developers, housing associations and even employers are likely to start playing a small but growing role over the next decade. Housing associations have a key and important part to play, especially when it comes to meeting the need to build communities rather than just lots of houses. Their greater involvement in the delivery of all types of housing should be encouraged although funding and risk issues will be the key obstacles to this.

Perhaps the most expensive part of the housing solution is making sure we build houses where people want to live. The recent shift in policy means that we are in real danger of building too many new flats in edge-of-town, poorly serviced locations. Investment in transport and infrastructure to sustain new places and open up areas with development potential and attract buyers are just as important as having the organisations to build the houses.

Postscript

Richard Donnell is head of residential research with FPDSavills.